A subsidy equals to a negative tax. By export subsidy is meant a payment to a company that produce a specific good for exports. Subsidies can take a variety of forms including cash payments and they may be targeted to e.g. production, marketing or transportation. The aim of export subsidies is to encourage producers to export and thereby protect the domestic industry against competition with lower prices in the international market. (1)
According to UNCTAD, agricultural export subsidies are one of the most distorting of the numerous distortions affecting agricultural trade. After long debates, the WTO General Council decided in 2004 to eliminate export subsidies by a specific yet undetermined date. (2)
Export subsidies amount to around $6 billion each year. The European Union is by far the largest provider of agriculture export subsidies, sugar and dairy companies receiving the most. Some countries pay export subsidies in order to dispose their surplus of agricultural production on world markets. These payments impose substantial costs on taxpayers in the subsidizing countries and reduce the world prices of several temperate and competing products to the detriment of producers in developing and least developed countries. However, it is argued that export subsidies also benefit consumers in food-importing countries, mainly developing countries. (2)
Today, agriculture has a small and declining importance in the global economy. Agriculture's share of global GDP has fallen from around one-tenth in the 1960s to little more than one-thirtieth today. In developed countries the sector accounts for only 1.8 per cent of GDP and only a little more of full-time equivalent employment. (3)
There is a fallacy that developed-country agricultural subsidies and protection hurt the poorest countries (i.e., LDCs) most. The argument behind the assertion is that protection and subsidies by the developed countries together depress the world prices and limit market access of the LDCs thereby impacting adversely the quantity as well as value of their exports. However, protection and output and export subsidies by the developed countries depress the world prices of agricultural products. As importers, LDCs have access to these low prices. Also, under the Everything But Arms (EBA) initiative of the European Union, LDCs have quota- and duty-free access to the EU market. This means that they can sell their exports at the internal EU price that is kept artificially high to protect the EU producers. (4)
In the EU the scheme is closely linked also to Common Agricultural Policy (CAP), which is by the European Commission supported by the following statement: "Agriculture is a sector which is supported almost exclusively at European level, unlike most other sectors, which are governed by national policies. It is important to have a public policy for a sector that is responsible for ensuring our food safety and which plays a key role in the use of natural resources and the economic development of rural areas." (6) The CAP expenditure is further divided into direct payments, market measures and rural development. (7)
Relation to Sustainable Development Goals (SDGs)
In SDG2 it is specifically mentioned that in order to aim for Zero Hunger, agricultural export subsidies should be eliminated. One of the subtargets states that "Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round"
Relation to corporate praxis and examples from Finland
A introduced above, the European Union is by far the largest provider of agriculture export subsidies, sugar and dairy companies receiving the most.(2) The Finnish companies receiving the most agricultural export subsidies are Sucros Oy, Valio Oy and Suomen sokeri Oy. (5)
Below, a statistic of CAP expenditure in Finland in 2014 (7) clearly shows that the two main categories for receiving aid are milk and milk products and fruit and vegetables, to which sugar beet is included in.
Source Statistical Factsheet Finland April 2016 by European Commission (7) pg. 4
References
1) Smith, P 2013, Global Trade Policy - Questions and Answers, John Wiley & Sons, Incorporated
2) Peters, R 2006, ‘Roadblock to Reform: The Persistence of Agricultural Export Subsidies’ Policy Issues in International Trade and Commodities, UNCTAD, No. 32
3) Anderson, K & Martin, W, 2005, Agricultural Trade Reform and the Doha Development Agenda, The World Bank
4) Panagariya, A, 2005, Agricultural liberalisation and the least developed countries: six fallacies, The World Economy
Definition
A subsidy equals to a negative tax. By export subsidy is meant a payment to a company that produce a specific good for exports. Subsidies can take a variety of forms including cash payments and they may be targeted to e.g. production, marketing or transportation. The aim of export subsidies is to encourage producers to export and thereby protect the domestic industry against competition with lower prices in the international market. (1)
According to UNCTAD, agricultural export subsidies are one of the most distorting of the numerous distortions
affecting agricultural trade. After long debates, the WTO General Council decided in 2004 to eliminate export subsidies by a
specific yet undetermined date. (2)
Export subsidies amount to around $6 billion each year. The European Union is by far the largest provider of agriculture export subsidies, sugar and dairy companies receiving the most.
Some countries pay export subsidies in order to dispose their surplus of agricultural production on world markets. These payments impose substantial costs on taxpayers in the subsidizing countries and reduce the world prices of several temperate and competing products to the detriment of producers in developing and least developed countries. However, it is argued that export subsidies also benefit consumers in food-importing countries, mainly developing countries. (2)
Today, agriculture has a small and declining importance in the global economy. Agriculture's share of global GDP has fallen from around one-tenth in the 1960s to little more than one-thirtieth today. In developed countries the sector accounts for only 1.8 per cent of GDP and only a little more of full-time equivalent employment. (3)
There is a fallacy that developed-country agricultural subsidies and protection hurt the poorest countries (i.e., LDCs) most. The argument behind the assertion is that protection and subsidies by the developed countries together depress the world prices and limit market access of the LDCs thereby impacting adversely the quantity as well as value of their exports. However, protection and output and export subsidies by the developed countries depress the world prices of agricultural products. As importers, LDCs have access to these low prices. Also, under the Everything But Arms (EBA) initiative of the European Union, LDCs have quota- and duty-free access to the EU market. This means that they can sell their exports at the internal EU price that is kept artificially high to protect the EU producers. (4)
In the EU the scheme is closely linked also to Common Agricultural Policy (CAP), which is by the European Commission supported by the following statement: "Agriculture is a sector which is supported almost exclusively at European level, unlike most other sectors, which are governed by national policies. It is important to have a public policy for a sector that is responsible for ensuring our food safety and which plays a key role in the use of natural resources and the economic development of rural areas." (6) The CAP expenditure is further divided into direct payments, market measures and rural development. (7)
Relation to Sustainable Development Goals (SDGs)
In SDG2 it is specifically mentioned that in order to aim for Zero Hunger, agricultural export subsidies should be eliminated. One of the subtargets states that "Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round"
Relation to corporate praxis and examples from Finland
A introduced above, the European Union is by far the largest provider of agriculture export subsidies, sugar and dairy companies receiving the most.(2) The Finnish companies receiving the most agricultural export subsidies are Sucros Oy, Valio Oy and Suomen sokeri Oy. (5)
Below, a statistic of CAP expenditure in Finland in 2014 (7) clearly shows that the two main categories for receiving aid are milk and milk products and fruit and vegetables, to which sugar beet is included in.
Source Statistical Factsheet Finland April 2016 by European Commission (7) pg. 4
References
1) Smith, P 2013, Global Trade Policy - Questions and Answers, John Wiley & Sons, Incorporated
2) Peters, R 2006, ‘Roadblock to Reform: The Persistence of Agricultural Export Subsidies’ Policy Issues in International Trade and Commodities, UNCTAD, No. 32
3) Anderson, K & Martin, W, 2005, Agricultural Trade Reform and the Doha Development Agenda, The World Bank
4) Panagariya, A, 2005, Agricultural liberalisation and the least developed countries: six fallacies, The World Economy
5) http://farmsubsidy.openspending.org/FI/ Visited 8.2.2017
6) http://europa.eu/rapid/press-release_MEMO-13-631_en.htm Visited 15.2.2017
7) https://ec.europa.eu/agriculture/sites/agriculture/files/statistics/factsheets/pdf/fi_en.pdf Visited 15.2.2017